Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

HUON v. JOHNSON & BELL (September 21, 2011)

The law firm of Johnson & Bell fired associate Meanith Huon in early 2008. Huon filed charges with the EEOC and the Illinois Department of Human Rights. He also filed suit in state court against several attorneys and the firm, alleging defamation and intentional infliction of emotional distress. The state court dismissed the complaint on the ground that the allegedly defamatory statements were protected by either the qualified or absolute privilege. Huon appealed that decision. Meanwhile, Huon asserted race and national origin discrimination claims, and a state claim for tortious interference with prospective business relationship, in federal court, again naming the firm and several of its attorneys. The defendants moved to dismiss or, in the alternative, to stay under the Colorado River abstention doctrine. Judge Manning (N.D. Ill.) concluded that both suits arose out of the same core facts but that the lack of a final judgment in the state court case did not yet bar the federal case. She therefore decided to stay the federal case pending the resolution of the state appeal. Huon appeals.

In their opinion, Seventh Circuit Judges Posner, Rovner, and Wood vacated the stay and remanded for further proceedings. The Court noted that the Colorado River doctrine is a very narrow exception to a court's "virtually unflagging obligation" to exercise its jurisdiction. It is appropriate only in the most exceptional circumstances. The principal question is whether the cases are parallel and would be resolved by examining the same evidence. The Court concluded that much of the evidence Huon would need to prove discrimination would be irrelevant to his state court defamation and emotional distress claims. Even if the cases were parallel, the Court emphasized the exceptional circumstances required to justify a stay. The Court identified 10 factors in Adkins, many of which were not considered by the district court and those that were considered were considered rather perfunctorily. In any event, the Court concluded that the district court focused on the potential future res judicata effect of the state court appeal. That is not enough to justify the stay. The Court remanded the case to the district court "for another look."

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AMERICAN BANK v. CITY OF MENASHA (November 29, 2010)

The City of Menasha, Wisconsin financed a power plant conversion by issuing bonds. Unfortunately, the project ended up over-budget and the city defaulted on the bonds. Several bondholders, including American Bank, filed a class action against the City. The suit alleged violations of federal securities law. A few weeks after filing suit, the Bank submitted a public records request to the City pursuant to state law. When Menasha refused to produce the requested records, the Bank obtained an order from a state court ordering compliance. Instead of complying, Menasha sought a stay from the district court in which the class action was pending. Judge Springmann (N.D. Ind.) granted the motion and issued a stay under the Private Securities Litigation Reform Act, as amended by the Securities Litigation Uniform Standards Act. The Act requires that discovery be stayed while a motion to dismiss is pending and authorizes a district court to stay state court discovery proceedings when necessary. The Bank appeals.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Sykes reversed. The Court first addressed its jurisdiction. Although discovery orders are usually not appealable, there are exceptions – plus, this may not be a discovery order. The Court concluded that jurisdiction was inseparable from the merits. If the Bank is right on the merits, it is not a discovery order but an appealable injunction. If the City is right on the merits, it is a discovery order and unappealable unless it fits within an exception. The Court sided with the Bank. First of all, discovery is a well defined word in federal civil procedure and does not generally include the entirety of a party's investigation. Second, if the Act meant to use it in a different way, there must be a reason based on statute or policy. The policy behind the discovery stay is to prevent one party from using discovery to impose exorbitant costs on the other for the purpose of inducing a settlement. That concern does not exist here, since the cost of complying with the public records request can be charged to the Bank. Menasha concedes that it couldn't refuse a newspaper's request for the same records, nor could it have refused the Bank's request if it made the request a few weeks before filing the complaint rather than a few weeks after. The City not only does not convince the Court to adopt a broad definition of "discovery" in the Act -- it convinces the Court that their interpretation is futile, would create a “precedent of unmanageable scope,” and would hold the law “out to ridicule.”

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SHERWOOD v. MARQUETTE TRANSPORTATION CO. (November 23, 2009)

Bluegrass Marine employs Michael Sherwood as a deckhand on one of its Mississippi River vessels. Sherwood alleged that he was injured during his employment. He brought suit under the Jones Act. Bluegrass sought a stay in favor of arbitration, invoking a clause in Sherwood's employment contract that required all disputes to be arbitrated under the Illinois Uniform Arbitration Act. The court denied the stay, concluding that the Federal Arbitration Act (which does not apply to seamen) preempted the Illinois Act. Bluegrass appealed.

In their opinion, Chief Judge Easterbrook and Judges Evans and Williams dismissed for want of jurisdiction. The Court noted that Bluegrass relied on § 16 of the FAA, which authorizes interlocutory review of a refusal to stay an action under § 3 of the FAA. The Court concluded that § 16 could not provide a basis for jurisdiction since the FAA does not apply to seamen and because Bluegrass never sought or was denied a stay under § 3 of the Act. The Court also rejected Bluegrass' reliance on both the collateral order doctrine and § 1292 (as the denial of an injunction) as bases for an appeal. Although the Court denied the appeal, it did express its doubt regarding the correctness of the district court's preemption conclusion.

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AMERICAN RIVER TRANSPORTATION CO. v. RYAN (August 27, 2009)

Kerrie Vesolowski was a passenger on a motor boat when it collided with a barge. Vesolowski sued American River Transportation Co. to recover for injuries in state court. American filed an action in federal court pursuant to the Shipowner's Limitation of Liability Act. The Act limits a shipowner's liability to the value of its ship if it can prove that the acts complained of occurred without its privity or knowledge. The Act also requires that any claims brought against the owner “cease” during the pendency of the proceedings. The district court ordered that Vesolowski’s proceedings be stayed. Vesolowski complied. After more than a year, American asked the court to find Vesolowski (and others) in contempt and to impose sanctions. The court granted the motion and required Vesolowski to dismiss her state court action. Vesolowski appeals.

In their opinion, Judges Bauer, Ripple and Wood reversed and remanded. The Court first clarified its jurisdiction, noting that it has jurisdiction over an order modifying an injunction but lacks jurisdiction over an order interpreting an injunction. The Court concluded that the order modified the earlier injunction because it required that the case be dismissed, rather than merely stayed. Addressing the merits, the Court noted that the order had two possible bases: 1) the Act requires a dismissal rather than a stay, or 2) the Act requires only a stay and the dismissal is a sanction for Vesolowski's actions during the stay. The Court rejected the first basis. The use of the word "cease" in the Act and the Act's provision preserving Vesolowski's right to her state court remedy convinced the Court that the Act only requires a stay. The Court rejected the second basis as well, as it found no grounds for a sanction. The state case remained stayed. Vesolowski's only action was to add additional defendants and theories of liability. American never had to respond in state court. The Court expressed its opinion that the district court did not intend the dismissal order to be a sanction. If it did, however, it was an abuse of discretion.

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